Dive Brief:

• Grocery Outlet recorded $989.8 million in net sales during its fourth quarter of fiscal year 2023, a 6.3% year-over-year increase, the discounter reported Tuesday. The company’s comparable store sales were up 2.7% during the period compared with the same quarter last year. 
• The discount grocer is planning to launch a new private label program starting in the second half of this year, Grocery Outlet President and CEO RJ Sheedy told investors. 
• Grocery Outlet executives told investors its purchase of discount chain United Grocery Outlet (UGO) provides a “great entry point” into the Southeast as part of its larger store fleet expansion goals.  

Dive Insight:

Grocery Outlet said that a 7.5% increase in the number of transactions drove its growth comp sales, which was partially offset by a 4.5% decrease in average transaction size. Disruptions from the implementation of new technology negatively impacted comp sales by approximately 200 basis points and gross margin by 130 basis points in Q4, with Sheedy telling investors that the system's implementation issues should be resolved “soon.”

“While food inflation has been moderating, consumers still face higher food prices and other financial burdens, our compelling savings and ever changing assortment of high-quality wow items continue to drive healthy traffic increases and market share gains,” Sheedy said.

Grocery Outlet is looking to boost its baskets and margins with its private brand rollout later this year, executives said. The grocer is aiming to launch 100 SKUs under the upcoming line by year end, Sheedy said, noting the private brand will initially focus on “everyday value commodity categories” that help customers complete full shops. 

“These items will help us capture larger baskets and create a stickier customer relationship,” Sheedy said.

Some examples of the commodity offerings include water, baking items, pasta and cheese, Sheedy told investors, noting that the private label will also include “unique items” and natural, organic, specialty and healthy products, which the company calls “NOSH.” 

In Q4, Grocery Outlet recorded its fifth consecutive quarter of decelerating net sales and comp sales growth after both metrics peaked in the company’s Q3 FY 2022. 

Grocery Outlet opened 13 stores during its Q4, ending its fiscal year with 468 locations across nine states. The discounter is planning to add 55 to 60 net new stores in its fiscal year 2024, including its purchase of the 40 UGO stores, as it eyes operating over 4,000 stores across the U.S. in the future.

The nearly $62 million deal with UGO, which was announced earlier this month and is expected to close early in the second quarter, will extend Grocery Outlet’s reach into Tennessee, North Carolina, Georgia, Alabama, Kentucky and Virginia, helping the discounter establish a foothold in the Southeast. 

“United Grocery Outlet is a healthy, profitable and growing business. Their opportunistic buying model, similar company values and adjacent geographic footprint make it an ideal strategic fit,” Sheedy said. 

Sheedy noted that UGO’s stores, which average 17,000 square feet, have seen “healthy” same-store sales growth in recent years. To accelerate the growth of the acquired UGO stores, Grocery Outlet is looking at expanding assortment; making investments in signage, technology and marketing; and implementing Grocery Outlet’s independent operator model, executives said. 

For its fiscal year 2024, Grocery Outlet is projecting that its net sales will total $4.3 billion to $4.35 billion and comp sales growth between 3% and 4%.